Bright future seen for dry bulk charter market

Drewry expects dry bulk shipping charter rates to recover from the second
quarter of 2018 on the back of strengthening Asian iron ore demand, according
to the latest edition of the Dry Bulk Forecaster, published by global shipping
consultancy Drewry.

For the medium and long term, Drewry holds the same views as in previous
forecasts. Chinese steel production is expected to pick up pace at the end of
winter, in the second quarter of next year, by which time production curbs will
have relaxed. Strong infrastructure and construction activities will further
strengthen steel consumption.

Meanwhile, the Chinese government is closing down inefficient and highly
polluting mills; this will pave the way for efficient millers to produce high
quantity steel, strengthening demand for high-grade imported ore. Growing grain
consumption in African and Asian countries will support grain trade, it
explained in a release.

The China-driven Belt and Road Initiative (BRI), previously known as One
Belt One Road, will also drive dry bulk shipping in the long run. The Chinese
government is planning to invest heavily in infrastructure development to
revive the 16th century Silk Route from China through Central Asia and the
Middle East to Europe, extending to the maritime route linking China to
South-East Asia and East Africa by sea. The BRI would involve building new
ports, roads, railways, power plants and pipelines. This highly ambitious
project will create strong tailwinds for dry bulk shipping, taking into account
the massive planned infrastructure development undertaken by the Chinese
government, which can entail an expenditure of up to 8 trillion US Dollars by
2020.

On the supply side, the dry bulk fleet will grow at a moderate pace in the
coming years. Improving charter rates are reviving the interest of shipowners
in the newbuild market; however, fleet growth will remain in check because of the
thin orderbook and IMO regulations (low deliveries in the short-term and high
demolition activity in the long-term). Hence, a big chunk of the orderbook will
be replacement tonnage.

Nonetheless, there is a downside for the short term. To tackle pollution
caused by high coal consumption in the winter months, the Chinese government is
planning to cut down steel production between November 2017 and March 2018.
This will directly impact demand for iron ore in the short term. As per the
proposed policy, the government might impose a 50 per cent cut on existing
steel production of 40 million tonnes, but this goal looks highly ambitious,
the release said.

"We believe a 25 per cent cut is more achievable, in which case there
would be a reduction of 20 million tonnes of steel production, which as a
result, would reduce demand for iron ore. Even though iron ore demand will
remain strong in other Asian countries, such as South Korea and Taiwan, we do
not expect this demand to be strong enough to offset the impact of reduced
demand from China," commented Mr Rahul Sharan, Drewry’s lead analyst for
dry bulk shipping.

"In brief, the next few months notwithstanding, a bright future is
expected for the dry bulk charter market, providing solace to shipowners and
shipyards alike," added Mr Sharan.